Monthly Archive for February, 2010

AG Subpoenas Encore Capital Group

February 27, 2010, by Seth Hettena. 0 Comments

Haven’t seen this anywhere.

San Diego-based Encore Capital Group, which collects on bad credit card debts, has disclosed that it is the subject of a state investigation:

On January 6, 2010, the Office of the Attorney General of the State of California, the “California Attorney General,” issued a subpoena to us to answer interrogatories and to produce documents in a proceeding entitled “In the Matter of the Investigation of Encore Capital Group, Inc., Midland Credit Management, Inc. [an Encore subsidiary] and Affiliated Persons and Entities” concerning our debt collection practices and related topics. We intend to cooperate fully with the California Attorney General in response to this subpoena, subject to applicable law.

The Federal Trade Commission has also ordered Encore to submit information about its practices. “Consumers have reported that debt collectors frequently try to collect from the wrong consumers or the wrong amounts, or both,” the FTC reports. Encore is one of the nine biggest consumer debt buyers that collectively buy 75 percent of all consumer debt sold in the United States.

Business at Encore, as you might expect, is good. Net income in 2009 was $33 million up 238 percent from $13 million the previous year.

Encore has several strategies to collect on bad credit card debts, relying principally on a network of lawyers in the United States and a call center in Gurgaon, India and elsewhere.

It costs Encore about 50 cents for every dollar it recovers.  Last year it collected nearly half a billion dollars.

What Happened At La Jolla Bank? Part II

February 25, 2010, by Seth Hettena. 2 Comments

La Jolla Bank, which failed last week amid allegations of possible fraud, is the subject of a Nevada lawsuit that has a great cast of characters.

It involves a Republican Senate candidate, a flamboyant San Diego real estate broker, a basketball coach known for chewing towels, a horse farm that once belonged to Don Drysdale, and allegations of fraud.

The Tarkanian family sued La Jolla Bank in January to stop it from foreclosing on 13 acres of vacant land on south Las Vegas Boulevard. (See 1 and 2.)

The Tarkanians are a prominent Las Vegas family: Danny Tarkanian is a Republican who’s trying to unseat Senate Majority Leader Harry Reid. His dad, Jerry, is the former towel-chewing men’s basketball coach at UNLV; his mom, Lois, is a Las Vegas councilwoman.

La Jolla Bank lent $25.5 million in 2005 to the Tarkanians and their partners, with the Las Vegas land as security.

The Tarkanians planned to loan some of that money to Solana Beach broker-turned-developer Robert A. Dyson Jr. for an “equestrian destination resort” in Anza, California on land once owned by Dodgers great Don Drysdale.

Unbeknownst to the Tarkanians, however, Dyson already owed money to La Jolla Bank for the Anza project. He paid off some of his La Jolla Bank loans with the money that the Tarkanians borrowed from the same bank.

The North County Times reported last year that Dyson and his wife made a fortune selling high-end coastal real estate only to file for bankruptcy in 2008. Some juicy details:

“The trustee supervising their bankruptcy recommended in December that the couple abandon the Rancho Santa Fe home that they bought in June 2005 because debt and liens account for nearly its entire $7 million value. A later filing by the trustee recommended they give up a $90,000 leased Porsche sports car and their $3.2 million home in Palm Desert, which is in foreclosure.”

The Tarkanians’ lawsuit describes Dyson as friends with Rick Hall, La Jolla Bank’s president, and says he attended regular meetings and events at the bank.

The bank’s “main owner,” Frank Warren, served as the landlord for several of Dyson’s real estate offices, according to the Tarkanians’ lawsuit.

“Because of the close connection between Mr. Dyson and La Jolla Bank, La Jolla Bank was well aware of the perilous web created by Mr. Dyson in which it aided Mr. Dyson,” the suit states.

What Happened At La Jolla Bank?

February 24, 2010, by Seth Hettena. 0 Comments

“Fraudulent activity was recently discovered” at La Jolla Bank, FDIC spokesman Greg Hernandez tells City News Service in a story today.

On Friday, the Office of Thrift Supervision shut the bank down and noted “deficient corporate oversight by the Board and management.”

Frank R. Warren established the bank in 1985. He remained chairman of La Jolla Bancorp, the parent holding company, which was controlled by Warren family trusts. The bank’s president and chief executive was Rick F. Hall.

La Jolla Bank grew incredibly fast in recent years. Assets (loans) had doubled in three years, rising from $1.6 billion in 2004 to $3.3 billion in 2007. This growth was concentrated in commercial and residential construction, land developing, and multi-family and commercial real estate lending, according to federal regulators.

The bank’s fall was even faster. Non-performing assets (90 days past due) increased from $71 million at year-end 2008, to $777 million at year-end 2009.

The Rancho Santa Fe-based bank had 124 employees, nine branches in Southern California and one in Dallas, Texas.

The bank was closed on Feb. 19 and deposits were transferred to OneWest Bank of Pasadena (formerly IndyMac). OneWorld investors include J. Christopher Flowers, George Soros and John Paulson.

(Quiet) Mideast Diplomacy via UCSD

February 23, 2010, by Seth Hettena. 0 Comments

Buried in the gargantuan defense bill signed by President Obama is a $2.4 million earmark for something called the Middle East Regional Security Program at the University of California, San Diego.

Although Congress has been directing money to this program for years, there’s no reference to this program on the UCSD website. But the obscurity is probably deliberate.

The earmarked money goes to the Institute on Global Conflict and Cooperation at UCSD, a 501 (c)(3) housed with the UCSD School of International Relations and Pacific Studies. (E-mails to a UCSD spokesman or the IGCC’s director, Susan Shirk, an expert on China, weren’t returned)

Rep. Howard Berman,  D-North Hollywood, who requested the funding, wrote in his earmark certification letter that the Middle East Regional Security Program facilitates “informal contacts among senior military and security officials and experts from the U.S., Israel, the Palestinian Authority, Arab states, and other countries in the region.”

This is what is known as Track II diplomacy, an informal back-channel dialogue between adversaries.

A 2007 RAND study (.pdf) on Track II diplomacy declares that the IGCC and another program run by UCLA’s Steven Spiegel  are “among the most prominent Track II processes in the Middle East.”

“These activities include a broad-based dialogue group currently meeting three times per year in Europe—involving up to 250 participants per meeting—as well as a smaller military-to-military dialogue meeting semi-annually, including, at times, in Middle East capitals when security and political considerations allow. The military dialogues include active-duty and retired generals from nearly every Arab country, Turkey, and Israel. (Iranian representatives participate in the broad-based meetings but not in the military dialogues.)…

The topics covered include military balances in the region, weapon effects, military doctrines, arms control, counter-proliferation measures, military ethics, and military education. Some meetings involve paper presentations, with participants sharing their country’s regional security perspectives and threat perceptions. Other meetings have focused on operational issues, such as a code of conduct for military behavior in the Middle East….

The first IGCC Track II workshop took place 10 days after the Iraqi invasion of Kuwait in 1990. The second occurred a week before the Arab-Israeli peace conference in Madrid the following years.

“Since many of the same regional elites left the IGCC conference to attend the formal Madrid talks, some considered the Track II conference a ‘trial run,’” RAND noted.

Wow. Sometimes, San Diego can surprise you.

Where’s Alan?

February 19, 2010, by Seth Hettena. 0 Comments

Remember Alan Bersin, the former San Diego US attorney and schools chief, nominated by President Obama on Sept. 29 to be Commissioner of Customs and Border Protection?

Daniel J. Kaniewski , a former special assistant to President Bush for homeland security, gives his take on this unconscionable delay in Roll Call:

Unlike the troubled nomination of the Transportation Security Administration chief, there have been no concerns raised about the CBP nominee, Alan Bersin. So why, in the wake of an attempted terrorist attack, is the Senate not moving expeditiously to consider the CBP nominee? The answer is unfortunately a familiar theme of dysfunctional Congressional oversight.

In the case of CBP, like many of the 22 agencies merged into the Department of Homeland Security in 2003, oversight remains a vestige of its previous incarnation. The Senate Finance Committee, which had jurisdiction over the U.S. Customs Service in the Department of Treasury — before it was dissolved and folded into CBP — retained oversight of CBP in perpetuity.

The Senate Finance Committee, including Chairman Max Baucus of Montana and ranking member Chuck Grassley Iowa, has been at the center of the health care debate in the Senate. While health care was the committee’s priority, this important nomination disappeared from the committee’s radar. Since no hearing has yet been scheduled, Bersin cannot begin the journey down the long road that awaits him if he is to be confirmed. And while the committee has managed to squeeze in hearings for Health and Human Services and Treasury nominees during the health care debate, the DHS nominee has been afforded no such opportunity. In the meantime, even the acting CBP commissioner retired as planned, just days after the Christmas attack. Thus, one of the key agencies securing our nation against terrorism is now without a leadership team.

The CBP example is unfortunately not a unique one; 80 committees and subcommittees continue to exercise oversight over various components of DHS. Despite numerous calls for reform during the past decade, including from the 9/11 commission and other congressionally chartered commissions, consolidating Congressional oversight remains an abiding, but still elusive, necessity. As 9/11 commission Chairman Thomas Kean and Vice Chairman Lee Hamilton recently testified before the Senate Commerce, Science and Transportation Committee in reference to the Fort Hood and Christmas attacks, “Enduring fractured and overlapping committee jurisdictions on both sides of the Hill have left Congressional oversight in a unsatisfactory state.”

While the Homeland Security and Governmental Affairs panel and the Intelligence Committee continue to hold hearings investigating the Obama administration and chastising it for its Christmas bombing failures, Congressional leaders stand on the sidelines either unconcerned or unaware that such a critical nomination languishes.

USS Nimitz in China

February 18, 2010, by Seth Hettena. 0 Comments

“Anchored in Hong Kong Harbor. Just a couple days late for Chinese New Year, Gung hay fat choy!”

So reads the Twitter page of the USS Nimitz, the San Diego-based aircraft carrier.

The Nimitz has been in Hong Kong before. This, however, is no ordinary visit.

The arrival of the carrier and its battle group for a four-day visit comes amid what the government’s China Daily calls “heightened tensions between Washington and Beijing.”

President Obama met today with the Dalai Lama and his administration plans to sell $6 billion in arms to Taiwan. Both are objectionable to China, which has threatened to sever military contacts.

A Beijing-based expert on international studies tells China Daily said that the fact that the Nimitz is in Hong Kong is evidence of “a strong signal” sent by China to the US of its sincerity in developing bilateral relations.

Iran’s PressTV sees the Nimitz visit as a sign that tensions between US and China may be easing.

Others still sense tension.

US Navy brass typically honor their hosts at parties during port calls, but The South China Morning Post reported that the chiefs at the local garrison of the People’s Liberation Army are largely ditching the ceremonial tours and parties in an “apparent snub.”

To protest missile sales to Taiwan, China abruptly withdrew permission for a 2007 visit from the USS Kitty Hawk.

Five months in the Persian Gulf apparently make for thirsty sailors. Some 5,000 crew from the Nimitz, USS Pickney, USS Chosin, USS Sampson and USS Rentz are expected to drop $1 million at local bars and restaurants, according to the Hong Kong Standard.

Editorial Writing At Its Most Pathetic

February 17, 2010, by Seth Hettena. 1 Comment

It might seem incongruous for the conservative San Diego Union-Tribune to advocate putting public pension dollars in Iran.

But that’s exactly what it called for in this overheated editorial in today’s newspaper.

The subject of the newspaper’s ire is a 2007 California law that prohibits CalPERS and CalSTRS, the giant state pension funds, from investing in a company with business operations in Iran.

The fact that CalPERS hasn’t complied with the law was brought to the public’s attention through the efforts of Dave Maass in San Diego CityBeat.

The U-T calls the California Public Divest from Iran Act “political posturing, pure and simple.” The stated goal of the bill’s author La Mesa Assemblyman Joel Anderson — punishing Iran for its support of international terrorism — is dismissed as “nonsense.”

The real targets of the editorial are Jerry Brown and Steve Poizner, two state officials who are running for governor. Brown is guilty of “unadulterated folly” for demanding the giant state pensions comply with state law.

The U-T is entitled to its opinion, but the editorial is misleading, distorting, and just plain wrong on a number of fronts:

The California Public Divest from Iran Act requires CalPERS and CalSTRS “to sell stock holdings in international companies that did business with Iran.”

Not quite. The law bars companies that invest or operate in Iran’s defense and nuclear sectors or develop oil and natural gas resources.

You can still sell soap and medical equipment to Iran.

Is this really so unreasonable?

“And if we believe that the state government should deter investments in nations that are at geopolitical risk, why would Iran be the only nation on the list?”

Well, it’s not.

Current law also requires CalPERS and CalSTRS to sell or transfer investments in Sudan. In the 1980s, the state approved similar measures to allow state entities to divest in South Africa in order to protest its apartheid policies.

“The professionals advising CalPERS and CalSTRS on portfolio strategies were obviously better qualified to evaluate investment danger.”

What professionals are they referring to?

The professionals who lost $1 billion by investing CalPERS assets in LandSource Communities, a bankrupt company that owns raw land in California. Or the professionals who advised the pension fund to put $500 million in Peter Cooper Village in New York, now in foreclosure?

Perhaps they mean the shady, unregistered professional placement agents who collected millions of dollars in payments from fund managers seeking business from CalPERS?

“Among the many respected international firms whose affiliates do business with Iran are Royal Dutch Shell, Siemens AG, Hyundai and Alcatel. Their operations are perfectly legal under U.S. and international law.”

First off, Hyundai no longer has active business operations in Iran, as CalPERS notes in its 2009 report on its Iran investments. Siemens recently announced it is pulling out by mid-2010.

Second, “respected” Siemens AG settled a U.S. Justice Department investigation into the company’s bribery of foreign officials by paying a record fine and admitting systemic violations of the Foreign Corrupt Practices Act.

Third, thanks to the Iran divestment act, we now know about CalPERS’ investments in Chinese state-owned firms:

  1. China Petroleum & Chemical Company (Sinopec), Asia’s biggest oil refiner, which signed four exploration contracts in Iran. 
  2. CNPC Hong Kong Ltd., which has a service contract for the Masjed Soleiman oilfields and is developing gas fields.
  3. CNOOC Ltd., the state-owned Chinese oil firm that was thwarted in its 2005 effort to buy Unocal.

These companies are investing in Iran (and Sudan) to secure reliable energy supplies for China, now the world’s second biggest oil consumer. Sooner or later, that will put them directly at odds with U.S. interests.

If, as the U-T maintains, CalPERS’ investments in these firms aren’t all that significant, then why should we support them with public pension dollars?

Update: CityBeat‘s latest report finds CalPERS is correcting its annual report as it has no holdings in Sinopec.

Washington Post Corrects Awlaki Story

February 17, 2010, by Seth Hettena. 0 Comments

The Washington Post has corrected its blockbuster Jan. 27 front-page story that reported that three U.S. citizens, including former San Diego imam Anwar Awlaki, were on the CIA’s “kill or capture” list.

Awlaki, a U.S. citizen who lived in San Diego in the 1990s and attended graduate school, is now living in a remote area in Yemen.

U.S. authorities believe he served as a “spiritual advisor” to some of the 9/11 hijackers and he corresponded with Maj. Nidal Hasan, the alleged Fort Hood shooter. There are also reports, which Awlaki has denied, that he directed the attempted Christmas Day jetliner bombing.

Even though he’s apparently not on a CIA list, Awlaki may still be marked for death. The military’s Joint Special Operations Command also maintains a separate list of  high-value targets (HVTs) targeted for kill or capture. The Post is sticking by its original reporting that  “several” Americans are on it.

Still it’s an embarrassing correction. ProPublica’s Stephen Engleberg sympathizes with the Post reporter, Dana Priest, and compares covering the intelligence community like fumbling around in a dark room.

He also notes some of the discrepancies that I pointed out earlier between Priest’s story and a Jan. 31 follow by the LA Times’ Greg Miller.

I still have doubts about this whole assassination story. As a U.S. citizen, Awlaki is protected under the Fifth Amendment to the Constitution. Like it or not, even traitors have rights in our country.

Coughlin Stoia’s Money Machine

February 12, 2010, by Seth Hettena. 0 Comments

A move is underway to clamp down on the massive fees earned by plaintiffs lawyers suing behalf of public pension funds.

Florida recently capped the fees its lawyers can earn at $50 million per case. Alabama, Iowa, Mississippi, and Oklahoma have introduced bills that would force states to disclose their contracts for legal services. Several states have already enacted similar measures.

This movement could be bad for business at San Diego’s Coughlin Stoia Geller Rudman & Robbins LLP, a politically-connected firm that has extracted huge settlements in class-action corporate lawsuits.

As I noted last week, Coughlin Stoia is cozy with Phil Angelides, the former California treasurer who is now leading a congressional inquiry into the causes of the financial crisis.

Byron Georgiou, of counsel to Coughlin Stoia, is a member of the Angelides commission.

For an excellent example of how the firm operates, there are few better examples than Coughlin Stoia’s 2006 lawsuit against UnitedHealth Group on behalf of CalPERS, the giant California pension fund.

The firm — known then as Lerach Coughlin — sued UnitedHealth over the company’s practice of backdating stock options granted to its executives.

A month after filing suit, Coughlin Stoia and its attorneys contributed $107,000 to Angelides’ gubernatorial campaign. Angelides was an influential member of the CalPERS board.

CalPERS became lead plaintiff in the lawsuit and Coughlin Stoia became lead counsel.

CalPERS’ general counsel, Peter Mixon, and Lerach Coughlin negotiated the firm’s compensation a year later.

The deal anticipated a billion-dollar settlement. Lawyers on the case were to receive 11 percent of the first $250 million recovered; 12 percent of the next $250 million; and 13 percent of anything exceeding $750 million.

Sure enough, UnitedHealth Group settled in 2008 for $925 million — the largest settlement ever in a stock options backdating case.

Under its fee arrangement, CalPERS’ attorneys were entitled $110 million, most of which would have gone to Lerach Coughlin.

Judge James S. Rosenbaum wouldn’t allow it. He  cut Lerach Coughlin’s golden egg nearly in half to $65 million.

In his ruling, Judge Rosebaum said that while Lerach Coughlin may have been pursuing in its own interests, CalPERS was not. The judge found no signs that the pension had used its enormous leverage to shop around for another law firm. Nor had it tried to negotiate a lower fee before filing the complaint.

Another problem was that the firm’s lead attorney, William Lerach, hadn’t bothered to tell the judge that he was under federal investigation. Lerach is serving two years in prison for paying kickbacks to his clients.

In fact, Lerach’s firm told Judge Rosenbaum in 2006 that the government “has notified Mr. Lerach that it does not intend to take any action against him.” 

“Had the truth been timely and fully disclosed to the Court, in all likelihood the Court would never have appointed his firm as lead counsel,” Judge Rosenbaum wrote.

It could also be said that had the truth been fully disclosed, Lerach Coughlin/Coughlin Stoia wouldn’t have been able to bill $900 an hour for the services of prisoner Bill Lerach.

Former Rep. Charlie Wilson Dead at 76

February 10, 2010, by Seth Hettena. 0 Comments

First John Murtha. Now former Texas Rep. Charlie Wilson has died at 76.

The ethically-challenged Wilson was made famous by the excellent book by the late George Crile (and the movie) Charlie Wilson’s War, which revealed how he secretly supplied the funds for the CIA’s covert war in Afghanistan in the 1980s.

He appears a couple of times in my book, Feasting on the Spoils, most memorably in a a scene at a poker game at the Watergate Hotel. The Watergate was a home away from home for San Diego defense contractor Brent Wilkes and his CIA buddy, Kyle “Dusty” Foggo.

Wilkes and Foggo continued their long-standing tradition of weekly card games in Washington. Foggo would invite along friends from the CIA, and Wilkes would bring the congressmen. One of the congressional guests was Charlie Wilson, who had in 1993 received the CIA’s Honored Colleague Award, the first time it was ever awarded to anyone outside the agency. At one game, Wilson invited along his friend from Texas Joe Murray, a columnist for The Atlanta-Journal Constitution. Murray met Wilson in the hotel lobby. “I’m not sure how they chose the Watergate,” Murray wrote in a May 20, 1994 column, a few days after the poker game. “Perhaps because a sense of history. Either that or a sense of humor.”Murray followed Wilson into the suite, which was filled with cigar smoke. Wilson knew a few of the CIA personnel at the game. One was Brant Bassett, a well-regarded officer who spoke fluent Russian, German, and Hungarian. Bassett was known as Nine Fingers after a motorcycle accident had cost him a finger. Wilson brought gifts, a sack full of guns that included a Soviet automatic used by Russian paratroopers. Wilson had a special pen for everyone, one that with a click fired a .32-caliber bullet. Everyone in the room started clicking his pen.

“Boy, I wish I’d had it this afternoon,” someone said.

“If only Aldrich Ames were here.”

Murray and Wilson stayed only a short while, and as they were leaving, one of the agents offered Murry one of his cigars, a Dominican. Murray offered the agent one of his, a Cuban. The agent told him, “You know, of course, this is considered contraband. But you’ve done the right thing as a good citizen. You’ve turned it in to the proper authorities. Be assured that very shortly it will be destroyed by fire.”

Wilson insisted there was no hanky-panky the night he was there. “The only activities that took place there that would be considered illegal and unlawful was cigar smoking on a nonsmoking floor,” Wilson said. Cunningham was the only other congressman who ever attended the poker games, according to Wilkes.

The “hanky-panky” Wilson is referring to were the rumors that flew around Washington that congressmen were supplied with prostitutes at these games. The FBI never found any evidence of this (the government certainly would have used it against Wilkes if they had) but people still think it’s what happened anyway.

After my book came out, Wilkes’ nephew and right-hand man, Joel Combs, testified that Wilkes told his employees to lose to Duke at poker and he yelled at one man who wasn’t losing enough.

Wilkes was sentenced to 12 years for bribing Cunningham; Foggo is serving time in prison for steering CIA contracts to Wilkes.

As for Charlie Wilson, he didn’t remember Wilkes; Foggo, however, he remembered well when I interviewed him in 2006.

When I told Wilson that Foggo had a rather unsavory reputation, Wilson said that the CIA sometimes had need of people like that in the CIA to do the dirty work against the KGB. (Foggo was no James Bond, however; he was a logistics officer.)

Ah, well, I’m sorry Charlie is gone. He made Congress fun.